Home repairs are not tax deductible. But, home improvements can be. Below, we will tell you what home improvements are tax deductible.
Maximize tax deductions by carrying out home improvements when you buy a home
You derive the maximum tax deduction benefits when you carry out your home improvement right at the time you start your mortgage. Why? Because you can add the entire cost of the home improvement to the price you paid for the house. Your mortgage payments will be higher as you pay for the added cost of the improvement. But then, you can use those higher mortgage payments to claim higher tax deductions, as you will be paying higher amount of interest (not rate).
Tax deductions for energy efficient home improvement installations
The federal government currently allows up to a 30% tax credit on costs of energy efficient installations. For some installations, the government allows only a 10% tax deduction on cost of installation. More details provided below.
10% tax deduction on cost of energy installation (or specific dollar amount where applicable)
- Biomass stoves – $300 tax credit
- Wood stoves or stoves that use plant based fuels to heat water or heat a home
- Thermal energy efficiency must be >75%
- Air source heat pumps – $300 tax credit
- HSPF 8.5+ rating (Split) and 8+ (Package)
- Central air conditioning system – $300 tax credit
- SEER rating of 16+ (Split) and 14+ (Package)
- Gas, propane or oil water boiler – $150 tax credit
- AFUE =>95
- Credit includes installation cost benefits
- Insulation – 10% of cost as tax credit, or up to a maximum of $500
- Batts, rolls, blow in fibers, rigid boards, expanding spray, pour-in-place, weather stripping, caulk seals, house wraps or even spray foam cans
- Installation costs cannot be claimed for benefits (Unless you install it yourself)
- Roofs – 10% of cost as tax credit or a maximum of $500
- Labor costs cannot be included to claim tax deductions
- Tax deductions available only for energy star certified material roofs
- Windows and skylights – 10% of cost as tax credit, or a maximum of $200
- Doors – 10% of cost as tax credit, or a maximum of $500
- Doors and windows must be energy star certified
- Maximum combined tax benefit for doors and windows is $500
All of above tax benefits will expire on December 31, 2016. There is a high probability of tax benefits being continued afterwards, but with probably altered terms.
30% tax deduction on cost of energy installation, with no upper limit
- Geothermal heat pumps
- Pumps that use natural heat from the earth’s ground to heat a home or a home’s water or cool the same
- Installation costs can be included to claim tax benefits
- Visit Federal Energy Star site for more details about requirements
- Small wind turbines
- Wind turbines with a capacity less than or equal to 100 kilowatts
- Installation costs can be included to claim tax benefits
- Solar water heaters*
- Tax benefits can be claimed only when installed solar systems generate at least half of the energy consumed by the installations it is connected to
- Solar system must be certified by Solar Rating and Certification Corporation
- Tax benefit not applicable if solar systems are used to heat swimming pool water or hot tubs or Jacuzzi installations
- Installation costs can be included when claiming tax benefits
- Solar panels for electricity*
- Systems must meet fire and electrical codes
- Fuel cells
- Installed fuel cell systems must have energy efficiency of at least 30%
- Minimum capacity must be at least 0.5kW
- Instillation costs can be included to claim tax benefits
All of above tax benefits will expire on December 31, 2016 (See exception below). There is a high probability of tax benefits being continued afterwards, but with probably altered terms.
*Tax benefits for solar energy systems are available until December 31, 2019. Then after, they are still available until 2021, but with reduced benefits as each year passes until 2021
Please note that tax benefit must be claimed in the year of the energy efficient installation. Do not postpone claiming your tax benefits!
Home improvement costs to aid medical access
If you need a ramp, modified bathroom, lowered cabinets or handrails or similar installations, to accommodate a medical condition, such home improvement expenses can be claimed as a tax deduction.
Just make sure that such claims are for installations that are medically necessary and not in any way adding to aesthetic value. Additionally, such expenses cannot be claimed for tax deductions if said installations increase the value of the home in any manner.
How improvement expenses can possibly exempt you from paying home sale tax?
Under federal law, you are entitled to not pay capital gains tax if you sell your property for a profit of $250,000 or less. Therefore, when you sell your home, you can discount home improvement expenses and see if the profit falls under $250,000, in which case no capital gains tax have to be paid.
Even if your property sells for a profit of more than $250,000, you can still use your prior home improvement costs to bring down your taxable profit.
Will expenses for a new kitchen, new bathroom tiles etc be counted as home improvement expenses? Can I claim tax deductions on these sort of expenses?
Expenses that increase the value of your home can be claimed for tax benefits only when you sell your home, like detailed in the aforementioned point. So, if you replaced your kitchen in 2010, you can’t claim that big expense when you file for taxes for the year ’11. You can however use that expense to bring down the profit of your home, when you sell the house in 2015.
But, please note that replacing your kitchen several times does not mean you can claim each replacement as a home improvement. Only the latest home improvement expense will count when you use it to bring down profits.
Home improvement expenses related to home office setup and maintenance
If you have a legitimate business that you run out of your home, you can use expenses related to setting up a home office. 100% of such expenses can be claimed as a tax benefit.
Expenses related to setting up a home office mean expenses like hiring the services of a carpenter to set up your cabinets and work table, in your home office.